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The core CPI rises less than expected as inflation pressures ease slightly in December

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The core CPI rises less than expected as inflation pressures ease slightly in December

New data from the Bureau of Labor Statistics on Wednesday showed that a key measure of inflation fell for the first time since July.

On a core basis, which excludes the more volatile costs of food and gas, December’s consumer price index (CPI) rose 0.2% from the previous month, a slowdown from the month’s gain 0.3% in November. On an annual basis, prices increased by 3.2%.

Before the December release, the core CPI was stuck at an annual gain of 3.3% over the past four months. It was the first time since July that the core CPI saw a slowdown in year-on-year price growth.

The printout contains the latest economic data that the Federal Reserve will consider before its next interest rate decision later this month. Stocks rose in the wake of the report, with 10-year Treasury yields (^TNX) falling 12 basis points to trade below 4.7%.

Read more: What the Fed’s interest rate cut means for bank accounts, CDs, loans and credit cards

“Markets reacted positively this morning and for good reason: the Federal Reserve is okay with seeing the CPI rise temporarily if that rise doesn’t feed through to the core CPI, and this is what happened in December,” says chief economist Eugenio by Raymond James. Aleman wrote in a note Wednesday.

Consumer prices rose as predicted last month. The CPI rose 2.9% in December from the previous year, up from November’s annual price increase of 2.7%. The annual increase was in line with economists’ expectations.

The index rose 0.4% last month, higher than November’s 0.3% gain and also on par with economists’ estimates.

Seasonal factors such as higher fuel costs and persistent food inflation kept the numbers high.

U.S. Federal Reserve Chairman Jerome Powell gestures as he speaks at a news conference following the Monetary Policy Committee meeting in Washington, DC, on December 18, 2024. (ANDREW CABALLERO-REYNOLDS/AFP via Getty Images) · ANDREW CABALLERO-REYNOLDS via Getty Images

Core inflation has remained stubbornly high due to higher costs for shelter and services such as insurance and medical care. Used car prices also showed another strong increase for the third month in a row, rising 1.2% in December, after a monthly increase of 2% in November.

Although inflation is slowing, it remains above the Federal Reserve’s 2% annualized target.

“Inflation has not been stable,” Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, told Yahoo Finance’s Morning Brief program. “It’s been quite uneven, but it’s good to see some progress in the right direction. And I think that’s the big part of this. We have waited a very long time on the inflation front. And that is very bad. a lot where the Fed is lining up.”

“It’s a bit of a breather not to get bad news this morning,” she continued. “But it’s really not a game changer. It’s much more of what we’ve seen with month-to-month volatility.”

The election of Donald Trump as the country’s next president has further complicated the prospects, with some economists arguing that the US could face a new uptick in inflation if Trump delivers on his key campaign promises. The new president will be sworn in next week.

Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for businesses and curbs on immigration, are seen as inflationary. And that policy could further complicate the central bank’s stance on interest rates.

Notable points from the inflation figures include the shelter index, which rose 4.6% on an unadjusted annual basis, slightly less than the 4.7% increase in November and the smallest increase in 12 months since January 2022. The index rose by 0 .3% compared to the previous month, which corresponds to November.

Economists say persistent inflation is largely responsible for higher core inflation rates in recent months.

The rent and owners’ equivalent rent (OER) index rose 0.3% each from November to December, a slight acceleration from the previous month’s 0.2% increase for both categories. Owner’s equivalent rent is the hypothetical rent a homeowner would pay for the same property.

The index for nights spent away from home fell 1% in December, after rising 3.2% in November.

Meanwhile, the energy index rose 2.6% month-on-month after rising just 0.2% in November. On an annual basis, the energy index fell by 0.5%, after a decline of 3.2% the month before.

Within the energy sector, gas prices soared, rising 4.4% in December after a modest 0.6% increase the previous month.

Gas prices rose 4.4% in December, following a modest 0.6% increase the month before (Courtesy REUTERS/Kevin Lamarque) · REUTERS/Reuters

The food index rose 2.5% in December last year, while food prices rose 0.3% monthly – proving to be a tricky category for inflation. The indexes for food at home and food away from home rose 0.3% each in December.

Read more: Daily prices continue to rise even with more stable headline inflation

On a year-over-year basis, groceries are up the most since October 2023. Egg prices continued to stand out, rising another 3.2% month-on-month after rising 8.2% in November. The price of eggs has increased by 37% in the past year.

Other indexes with notable increases over the past year include motor vehicle insurance (+11.3%), medical (+2.8%), education (+4%) and recreation (+1.1%).

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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